Why No One Wants to Crack the Health Care Walnut

A few days ago I had dinner with friends from a boutique actuarial services firm. After some chit chat, we soon turned to health care costs, health insurance and, as one would expect in the small talk lexicon of actuaries, mortality tables.

Soon enough we all agreed that the notion of health care insurance these days is both misleading and a misnomer. Because life expectancies are now in the 80s-in fact someone with average health at age 65 can expect to live until age 90-the probability that any one of us will die without having at least one prolonged expensive disease-cancer, heart disease, diabetes, arthritis-is virtually zero.

We are all familiar with the usual insurance underwriting risks-a boiler explosion, a house fire, car accident, crop failure. Insurance underwriters routinely calculate the probability of an infrequent but potentially catastrophic event to price the reimbursement for the accompanying unwelcome financial loss. They will even price happy probabilities, such as hole-in-one insurance, paid by a charity golf outing sponsor, for that one chance in a zillion where the proud owner of a lucky stroke could win a new Cadillac.

But as the probability of having an expensive or catastrophic event approaches certainty, the insurance premium quickly approximates the actual financial cost of a claim. This is what has happened to health care cost and why the talk of health care insurance is silly. The economics of health care are no longer a matter of "who" "if" and "how much". Instead it is about "when" and "who will pay".

Despite all of the attempts at managed care, consumer driven health care, variable usage pricing and other failed schemes-- benefiting only the health care consultants who conjure up such ineffective cures-- costs are still climbing at double digit growth rates, resistant to any and all broad spectrum antibiotics. The health care Don Quixotes still cling to the noble but elusive whim that reducing probabilities through behavior modification can drive down claims and cost.

Fat chance. For all of the blathering over tax deductibility, health savings accounts, single payer systems, employer mandates--it's the same chatter: either budgeting the inevitable costs that can't be avoided or shifting the cost burden from one gored ox to another.

Why is this health care walnut so hard to crack? Well, the answer is pretty obvious. We don't want to crack it. Consider the four non-negotiable demands we insist be in place for our health care system:

1) Health care is run by a semi-private monopoly where little or no competition is allowed.

2) Only a few will modify their personal habits; the rest expect medicine to remedy the pain from their self- indulgences.

3) Everyone expects the very best in medical technology and pharmaceuticals, the latest diagnostics and the most expensive and best trained medical practitioners available on the planet, now-all paid by someone else

4) No one is denied care, not even illegal immigrants or criminals on death row.

Any chance on the horizon to dismantle at least one of these four health care mandates? Not before an asteroid parks itself along Hollywood Boulevard. And so we might as well accept the reality that health care has become a de facto right, a public good to be enjoyed by all and should be financed just like every other public entitlement. Oh, and don't expect health care costs to behave any better either. As P.J. O'Rourke quipped,

If you think health care is expensive now, wait until it's free."

Who has the political muscle and the willpower to take a nutcracker out of the drawer and use it?

Geoffrey P. Hunt is a senior executive in a multinational electronics company.

A few days ago I had dinner with friends from a boutique actuarial services firm. After some chit chat, we soon turned to health care costs, health insurance and, as one would expect in the small talk lexicon of actuaries, mortality tables.

Soon enough we all agreed that the notion of health care insurance these days is both misleading and a misnomer. Because life expectancies are now in the 80s-in fact someone with average health at age 65 can expect to live until age 90-the probability that any one of us will die without having at least one prolonged expensive disease-cancer, heart disease, diabetes, arthritis-is virtually zero.

We are all familiar with the usual insurance underwriting risks-a boiler explosion, a house fire, car accident, crop failure. Insurance underwriters routinely calculate the probability of an infrequent but potentially catastrophic event to price the reimbursement for the accompanying unwelcome financial loss. They will even price happy probabilities, such as hole-in-one insurance, paid by a charity golf outing sponsor, for that one chance in a zillion where the proud owner of a lucky stroke could win a new Cadillac.

But as the probability of having an expensive or catastrophic event approaches certainty, the insurance premium quickly approximates the actual financial cost of a claim. This is what has happened to health care cost and why the talk of health care insurance is silly. The economics of health care are no longer a matter of "who" "if" and "how much". Instead it is about "when" and "who will pay".

Despite all of the attempts at managed care, consumer driven health care, variable usage pricing and other failed schemes-- benefiting only the health care consultants who conjure up such ineffective cures-- costs are still climbing at double digit growth rates, resistant to any and all broad spectrum antibiotics. The health care Don Quixotes still cling to the noble but elusive whim that reducing probabilities through behavior modification can drive down claims and cost.

Fat chance. For all of the blathering over tax deductibility, health savings accounts, single payer systems, employer mandates--it's the same chatter: either budgeting the inevitable costs that can't be avoided or shifting the cost burden from one gored ox to another.

Why is this health care walnut so hard to crack? Well, the answer is pretty obvious. We don't want to crack it. Consider the four non-negotiable demands we insist be in place for our health care system:

1) Health care is run by a semi-private monopoly where little or no competition is allowed.

2) Only a few will modify their personal habits; the rest expect medicine to remedy the pain from their self- indulgences.

3) Everyone expects the very best in medical technology and pharmaceuticals, the latest diagnostics and the most expensive and best trained medical practitioners available on the planet, now-all paid by someone else

4) No one is denied care, not even illegal immigrants or criminals on death row.

Any chance on the horizon to dismantle at least one of these four health care mandates? Not before an asteroid parks itself along Hollywood Boulevard. And so we might as well accept the reality that health care has become a de facto right, a public good to be enjoyed by all and should be financed just like every other public entitlement. Oh, and don't expect health care costs to behave any better either. As P.J. O'Rourke quipped,

If you think health care is expensive now, wait until it's free."

Who has the political muscle and the willpower to take a nutcracker out of the drawer and use it?

Geoffrey P. Hunt is a senior executive in a multinational electronics company.